GST compliance activities of the ATO and the Budget surplus

The Budget Strategy and Outlook: Budget Paper No. 1: 2012–13 and the Budget Measures: Budget Paper No.2: 2012–13 describe measures that effect changes to the collection of revenue from the goods and services tax (GST). This article will deal with the impact on the cash surplus of two compliance activities for which the Australian Taxation Office (ATO) will be specially funded and which have GST revenue implications for the Budget. Budget Paper No. 1 in Table 6 of Statement 5 gives information of the anticipated revenue from these two measures on a receipts basis. These details are set out in the first four rows of the following table. [1] The fifth row gives the details of the anticipated cash surplus for the forward estimate years, namely, the years 2012–13 to 2015–16.[2]

Budget Paper No. 2 states that the tax debt managing activity, which will increase cash receipts by $1,125.0 million over the forward estimates period, will include a GST component of $391.4 million that will be paid to the states and territories. [3] The figure of $1,125 million in Budget Paper No. 2 agrees with the receipts anticipated in Table 6 of Statement 5 of Budget Paper No. 1 set out above.

Budget Paper No. 2 also states that the GST compliance program in cash terms will increase receipts by $880.9 million, and will include a GST component of $554.1 million that will be paid to the states and territories. [4]

These compliance activities are expected to increase tax revenue in underlying cash terms of $2,005.9 ($1,125.0 plus $880.9) million, including the GST component of $945.5 ($391.4 plus $554.1) million, over the forward estimates period. The variance between the figure of $2,005.9 million from these two compliance activities as shown by Budget Paper No. 2 and the figure of $2,201.1 million as shown in the above table, sourced to Budget Paper No. 1, is $195.2 million. This variance appears to be the amount of $195.3 million (allowing for rounding up differences) which the Australian Government will provide to the ATO in 2014-15 and 2015-16 to continue the GST compliance program in those two years and which will be recovered from the states and territories under the GST Administration Performance Agreement.[5]

In referring to the 2012–13 budget cash surplus of $1.5 billion, one commentator raises the following concerns:

And there are two time bombs in the Budget unveiled by Treasurer Wayne Swan on Tuesday night. The first is that the budget gave cash to the Australian Taxation Office to chase more revenue. That will be fine where it raises genuine revenue, but many businesses will have to spend even more time justifying their perfectly proper tax record. The other is that recent economic weakness has generated just as big a shortfall in state budgets as it did for the feds. That bears watching. If the state premiers cut back as a result, then the pressures on Australia’s two-speed economy could worsen further.[6]

The figures in the table above indicate that only $311.7 million is expected in 2012–13 from tax debt managing compliance activity, out of total expected revenue in cash terms of $1,125.0 million. The risk of the $311.7 million not being entirely collected in 2012–13 is low as this amount relates to the collection of outstanding debts and not to amounts to be raised by assessment.

Further, the budget papers show no revenue from the GST compliance program activity for 2012–13 and 2013–14, with revenue from that activity expected thereafter. In the circumstances, one may take the view that the surplus of $1.5 billion for 2012–13 is not dependent on the success of this particular GST compliance activity.

However, there is scope to argue there is a risk that the ATO compliance targets will not be fully achieved and the expected revenue from the debt management activity of the ATO of $311.7 million, which is 20.8 per cent of the anticipated cash surplus of $1.5 billion for 2012–13, will not be fully collected. If this happens the surplus will be reduced.

The same arguments may be advanced to support the view that there is a risk to the anticipated budget surplus of $2.0 billion in 2013–14 being fully realised, if the ATO falls short of the estimated target of $393.3 million or 19.7 per cent of the budget surplus, from the debt management compliance activity.[7]

The anticipated budget surplus for 2014–15 is $5.3 billion and the anticipated revenue from both projected compliance activities by the ATO in that year is $735.3 million. As the expected contribution from the ATO compliance activity to the projected cash surplus for 2014–15 is only 13.9 percent, there is low risk to the projected cash surplus for 2014–15 being achieved, if the ATO does not collect the anticipated revenue.

The same argument applies to conclude that the threat to the projected cash surplus of $7.5 billion for 2015–16 is low, if the ATO compliance activity does not result in the collection of the expected revenue for that year of $ 760.8 million, as it is only 10.1 percent of the projected cash surplus for that year.

In the above analysis, no account has been taken of the fact that any shortfall in GST collections by the ATO will result in the GST distributions to the states and territories being reduced by an amount equal to that shortfall. In consequence, the budget surplus of $1.5 billion for 2012-13 and the other projected budget surpluses referred to above will not be adversely affected by any shortfall in the GST collections. The GST components, of the two ATO compliance activities as indicated above, is expected to total $945.5 million for the forward estimates period. However, any shortfall in GST collections will adversely impact on the budgets of the states and territories and not the Australian Government.

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